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3 Jan, 2015

Chinese commentary: Why the US recovery will create problems for emerging economies

Beijing, (People’s Daily Online) – December 30, 2014 — It is reported that US GDP in the third quarter rose by an annualized rate of 5%, the fastest rate of growth recorded since 2011. The rebound is above expectations – a 5% increase is historically unusual, especially for an economy as big as the US.

The U.S. has been maintaining inflation below 2%, and low prices have contributed to the economic rebound. Low inflation, combined with low international oil prices, has given a boost to US consumer confidence and to domestic consumption. A strong US dollar has attracted foreign capital to the US.

The rebound in the US economy is definitely good news domestically, but it is mixed news for emerging economies. As the US is a major importer, its recovery will increase its imports from emerging economies. Emerging economies can take the opportunity to promote their economic development.

But there is also a challenge caused by the rebound in US economy and a strong US dollar. As the US economy grows stronger, the Federal Reserve is likely to raise its interest rates, which will result in depressing the currencies of emerging economies. This will cause a further outflow of foreign capital from emerging economies. Russia’s large economy is already suffering from a weak ruble. China is suffering similar pain. This outflow of foreign capital will pose a challenge to emerging economies.

To deal with this challenge, emerging economies should have sound monetary policy, and significant and well-managed foreign reserves. They will also need to focus on further developing their real economy.

This article was edited and translated from《美经济复苏对新兴市场是大考》, source: The Beijing News, Author:Yu Fenghui